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Free Example of Economic Inflation Essay

Since the onset of the most severe economic meltdown since the Great Depression of the 1930s, the economy has exerted great pressure on Federal Reserve. In its quest to keep the economy moving, the Federal Reserve has bailed out giant financial institutions, lent billions to American companies, slashed interest rates to zero, and bough many dodgy assets. However, although this has helped to stabilize the economy, unemployed Americans are still feeling the pinch of the meltdown. Will injecting inflation into the economy be beneficial to Americans?

A fallacy at first look, but perhaps this is what America needs. America is facing two economic dilemmas: one is that consumers have large debts due to their ravish spending since the turn of the century; the second one is that consumers have now become overcautious in their spending, while businesses are hesitant to invest or expand. If the Fed was to raise inflation cautiously over the coming years while at the same time keeping the prices of consumer goods low, it might trigger customers to cut down on their spending.

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However, such a move might not be welcomed by consumers, who hate inflation, and by Fed, whose main interest is on lenders and on keeping prices down. Inflation is negatively proportional to consumers’ happiness. In addition, inflation shrinks consumption and value of savings. The uncertainty with future prices also makes business decisions hard. The Fed might also lose control over inflation.

Inflation is unpopular, as it reduces the standards of living and shrinks the value of a country’s currency. The prejudice against inflation is justified, given that such encourages sober spending habits. However, gradual increase of inflation can help stifle the rising debt levels. Although this will favor the undeserving and irresponsible, and punish lenders, it might be the only suitable policy to save the economy.

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